What is a Pell Scholarship? How It Affects Student Loan Forgiveness

New York — President Joe Biden’s student loan forgiveness program announced Wednesday aims to provide millions of Americans with $10,000 in student debt forgiveness.

But for federal Pell scholarship recipients, that amount is even higher: $20,000

So what exactly is a Pell scholarship? And why is there a special benefit for people who have one?

Created by the Higher Education Act in 1965 as a way to promote access to education, the Federal Pell Scholarships are special scholarships reserved for college students and certain other students with the greatest financial need. The scholarships generally do not have to be repaid, but they often do not cover the full cost of college – so the recipients take out additional loans.

The Biden administration is targeting recipients of Pell grants for additional forgiveness “to ease the transition back to repayment and help borrowers most at risk of arrears or default once payments resume,” the Department of Education said. .

About 27 million Pell grant recipients are now eligible for loan forgiveness. But for some, the $20,000 will barely make a dent.

Lynn Hunt, a data analyst in Portland, Oregon, is a Pell grant recipient who borrowed anywhere from $45,000 to $50,000 to attend the University of Wisconsin and paid back about $15,000, but still $70,000 owed for interest.

“I know (Biden) was talking about, you know, $20,000 for Pell scholarships, but the people who had Pell scholarships had to take out most of the loans,” Hunt said. “So $20,000 doesn’t help most of those people in a substantial way. And what happens every time we get one of these half measures is kicks the can for another decade.

However, for Yaneth Peña, the money will make a difference. Peña graduated from North Carolina State University in 2014. She got about $4,000 in scholarships and about $25,000 in federal loans. Under Biden’s forgiveness plan, her debt would be reduced to $5,000.

Relieved of the financial burden, Peña said she could now seriously pursue a graduate degree — something she said she’s been hesitant to consider in the past because of her loans.

“This could really change everything,” Peña said.

Pell grant recipients typically experience more challenges repaying their debt, notes the Department of Education. In the 2020-21 academic year, approximately 30% of all students enrolled in undergraduate programs in the United States received Pell Scholarships, and nearly every recipient came from a family earning less than $60,000 a year.

Nearly all Pell scholarship recipients are independent students or dependent students from the lower half of the income distribution, according to an Urban Institute report on college affordability.

Through the program, lower-income Americans can currently receive up to $6,895 per year for about six years.

If you are not sure whether you have received a Federal Pell Scholarship, see all financial aid award letters administered by the Office of Federal Student Aid.

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Associated Press reporters Gillian Flaccus in Portland, Oregon, Claire Savage in Chicago, and Arleigh Rodgers in Indianapolis contributed to this report. Savage and Rodgers are corps members for the Associated Press/Report for America Statehouse News Initiative. Report for America is a national, not-for-profit service program that places journalists in local newsrooms to report on classified issues.

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The Associated Press receives support from the Charles Schwab Foundation for educational and explanatory reporting to improve financial literacy. The independent foundation is separate from Charles Schwab and Co. Inc. The AP is solely responsible for its journalism.